There are 100 shares outstanding of a company and Net Income is $10,000 and is paid...

There are 100 shares outstanding of a company and Net Income is $10,000 and is paid out to shareholder as dividend without retaining earning so the dividend per share is $100. Assuming a 10 percent required return, the value of a share of stock today.

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Expert Solution

We know, value of a share = Dividend paid / Ke -g

where g is the growth rate.

g = Retention ration * Return on equity

Since, the retention is zero, so g becomes zero

Value of share = 100 / )/0.10 - 0

= 100 / 0.10

= 1,000

So, value of stock = $1,000

jeff jeffy answered 1 year ago

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